From time to time you may hear that the association board operates in a fiduciary capacity for the homeowners. Or you may read about the board’s fiduciary responsibility in the governing documents. Just exactly what does this mean?
Fiduciary duty simply means that the board has an ethical and legal obligation to make decisions in the best interests of the entire association, thereby acting as a fiduciary in a relationship of trust and confidence. That’s a small explanation for a very big responsibility.
Fiduciary duty includes a duty of loyalty to the association, which means that board members should never use their position to take advantage of the association. They should never make decisions for the association that benefit themselves at the expense of the association and its members.
Fiduciary duty also includes the duty to exercise ordinary care. This means board members must perform their duties in good faith and with such care and diligence as an ordinary prudent person would in a similar position and under similar circumstances.
Finally, fiduciary duty includes the duty to act within the scope of authority. The board must only act in accordance with the authority granted it by the governing documents or state statute.
Board members fulfill their fiduciary duty by:
- Being reasonably informed
- Understanding the association, its operations and governing documents
- Attending meetings and participating in decisions
- Avoiding potential conflicts of interest
- Using a formal budgeting process and reflects the wishes of the members
- Promoting understanding and acceptance of the reserve accounts among the members
- Collecting sufficient fees to adequately operate the association
- Soliciting bids and negotiating appropriate contracts
- Adopting responsible accounting practices and authorizing expenditures
- Ensuring the minutes record the official process and resolutions of the meetings
- Implementing appropriate risk management techniques to minimize liability
- Seeking the advice of professionals
In short, Colorado corporate law requires board members to act reasonably, ethically, legally, in unison, and in the best interests of the association.